ASB MAGAZINE: Afterpay’s AfterYAY sale starts today until March 20, 2020. If previous AfterYAY Day sales are anything to go by, this sale is yet another online sale frenzy that has the potential to hurt brick and mortar retailers if they are not adequately prepared. Since its first inception in 2015, Afterpays major sale day has gathered momentum, competing with B&M stores (without an online presence) and who are already reeling from the Black Summer bushfires as well as the economic downturn from the most recent Covid-19 pandemic. AfterPay claim to be ‘helping’ retailers through these ‘tough economic times’.
However, Afterpay shares suffered a 33 per cent wipeout recently in the wake of the COVID-19 pandemic that threatens to tip the economy into an inevitable recession.
AfterYAY sale had a record number of store involvements last year. Retailers already onboard include SurfStitch, City Beach, Iconic, General Pants, Volcom, Rusty and many more.
It’s clear these flash sales are here to stay and as Dougall Walker, Ex-Billabong and Volcom observed;
“I don’t think we needed it, but it’s here. It’s pretty hard when everybody else is doing it, when every other industry is doing it, to not get involved, to just put your head in the sand and say it doesn’t exist. Well, it does exist.”
(Read our related Professional Edition coverage on online flash sales HERE )
For the uninitiated, Afterpay allows customers to pay off a purchase in four instalments with no upfront payment, a practice known as By Now Pay Later or BNPY. Since launching in 2015, Afterpay’s stunning success with millennials has meant the company has reached a market value of $1.5 billion less than four years after its launch. According to Forbes, Co-founder and CEO Nick Molnar, 28, has a net worth of almost $200 million.
However, some news outlets have ousted Afterpay as a scheme, one stating that is putting shoppers into vicious cycles of debt that follow them long after they stop spending. An Instagram pole we conducted in 2018 revealed that 75% of our 1400 followers said ‘NAY’ to AfterYAY Day.
Some market commentators suggest whilst buy now pay later payment options (such as Afterpay and its competitors) are showing significant upside for Australian retail sales, they may be unable to sustain such growth they continue to show they are able to generate larger basket sizes (i.e., extra sales that consumers would not otherwise have made).
According to a report from ASIC it revealed that Afterpay earned 24.4% of its income from late fees and 75.6% from merchant fees. Critics have argued that the service may cause financial stress and the accumulation of debt. In April 2019, legislation was passed to provide ASIC with ‘Product Intervention Powers’ (PIP). These powers provide ASIC the authority to intervene where it identifies a risk of significant detriment to retail consumers (including those using BNPL services like Afterpay). The company supported the introduction of these powers as a way to provide regulatory oversight and protect consumers.
However, the shop now, pay later behemoth revealed a silver lining on Wednesday when it announced that it could activate hardship provisions for those whose financial position is under pressure due to recent events.
But AfterPays’s ‘generosity’ could come back to haunt them. If Afterpay’s bad debt expense as a percentage of sales rose on consumer defaults it would eat deep into its bottom line. For example, in a recession scenario, if Afterpay’s bad debt expense as a percentage of sales for the last half doubled to 2 per cent it would take up 43.3 per cent of Afterpay’s revenue before it accounted for a single dollar in all other expenses.
In June 2019, Afterpay disclosed that it was under probe by AUSTRAC for potential breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CTF regulations). The company is reportedly ‘in dialogue’ with the regulators and the outcome of the probe has yet to be determined. AUSTRAC upon identifying several concerns with its compliance, then subsequently ordered the appointment of an external auditor at Afterpay’s expense to examine its compliance with the AML/CTF regulations.
Here’s the full list of Australian stores that offer Afterpay in the SPORTS & OUTDOOR market